Monthly instalment amount is combined of principal and interest payable. Under the “Rule of 78”, the proportion of interest will be more in earlier instalments comparing to the later ones. Below is an example to demonstrate the calculation of interest fee under “Rule of 78”. Please note that the bank may at its discretion apportion the monthly repayments between payment of interest and repayment of principal.

For example, if a loan is to be repaid over 12 instalments, the total interest will be divided into 78 portions (12 + 11 + 10 + … + 1 = 78). 12/78ths of the total interest is allocated as the first instalment’s portion of the interest payable, 11/78ths of the total interest is allocated as the second instalment’s portion and so on until the twelfth instalment, at which 1/78th of the total interest is allocated as that instalment’s portion of the interest payable.